[The Era of Mineral Hegemony] Budget Cut to 1/20 in 10 Years... Resource Development Losing Momentum

Lost Decade in Resource Development... Budget Reduced to 1/22
Impact of Being Labeled 'Jeokpae'... New Mineral Resource Projects 43→2
Existing Mines Must Be Sold Under Current Law... Forecast Agency Also Expresses Concern

A view of the Narabri thermal coal mine in Australia operated by the Korea Mine Reclamation Corporation.
[Photo by Asia Economy DB]

[Asia Economy Sejong=Reporter Lee Junhyung] The Korea Mine Reclamation Corporation (KMRC) is unable to actively respond to the exploration collaboration proposal from the Canadian resource development company Idaho Champion due to the newly enacted "Korea Mine Reclamation Corporation Act" last year. While the previous Mineral Resources Corporation Act explicitly stated "overseas mineral resource development" as a role and function of the corporation, this phrase was omitted in the KMRC Act. The Ministry of Trade, Industry and Energy, the competent authority, also holds the position that KMRC cannot make new overseas investments.

The KMRC Act also specifies the "disposal of overseas assets" by the corporation. According to this law, KMRC is, in principle, required to sell all overseas mines it has secured over the past several decades. Article 10 of the KMRC Act's supplementary provisions stipulates detailed procedures for selling overseas mines, including the establishment of an Overseas Asset Management Committee under the Ministry of Trade, Industry and Energy. Under current law, one of KMRC's functions, "investment in and management of mineral resource business corporations," remains effective only until all overseas assets are sold.

Resource Development Branded as 'Deep-rooted Evil'

The fact that KMRC's overseas projects have been virtually blocked at the source is largely due to resource development being stigmatized as a "deep-rooted evil" linked to the resource diplomacy of the Lee Myung-bak administration. Under the Park Geun-hye administration, the overseas resource development drive of resource public enterprises such as KMRC and Korea National Oil Corporation began to be restrained, and the Moon Jae-in administration formed a task force (TF) for overseas asset restructuring immediately after taking office.

The problem is that while KMRC's functions were reduced, the global supply chain began to be reorganized according to geopolitical logic. Especially after the Ukraine crisis acted as a catalyst, the trend of resource weaponization by major mineral-producing countries intensified, causing prices of key materials for advanced industries such as nickel and lithium to soar. In fact, right after Russia invaded Ukraine in March, the price of nickel on the London Metal Exchange (LME) surged from the existing $20,000 per ton to $100,000 per ton. This was due to growing concerns that Russia, which accounts for 10% of global nickel production, might restrict exports. At that time, LME declared a temporary trading suspension for the first time in its 145-year history.

Government Budget from 1.7 Trillion Won to 77 Billion Won

Although the global hegemony battle over minerals is intensifying, the dominant analysis is that Korea's resource development projects have effectively lost momentum. Overseas resource development has been excluded from the government's key tasks over the past decade, leading to a significant reduction in overseas projects of resource public enterprises as well as related budgets. According to the "2021 Overseas Resource Development Report" prepared by the Ministry of Trade, Industry and Energy, the government's overseas resource development budget shrank from 1.7015 trillion won in 2010 to 76.9 billion won last year, a 22-fold decrease over the past ten years. Specifically, the budget for oil field development investment dropped from 1.2556 trillion won to 40.3 billion won, and the overseas resource development loan budget plunged from 309.3 billion won to 34.9 billion won. Even the KMRC investment budget went from 130.7 billion won to "zero."

The government's stance also dampened private sector investment. New mineral resource projects involving domestic companies decreased from 43 cases in 2010 to 2 cases last year. The fact that there were still 2 new mineral resource projects last year was due to the nickel price surge, which led two companies, POSCO and About the Nickel, to invest in mines in Australia and Indonesia, respectively. During the same period, new entries in the oil and gas sector also dropped from 24 cases to 2 cases.

Budget Office: Insufficient Budget for Resource Securing

There are also criticisms that the Yoon Seok-yeol administration's resource development policy is not significantly different from previous governments. The current administration has allocated 662.114 billion won for resource and supply chain sectors next year. This is a 41.7% increase (194.773 billion won) compared to last year's supplementary budget of 467.341 billion won. However, among the five major projects with large budget increases (419.36 billion won), only 26.3% (110.234 billion won) is allocated for new resource acquisition. Approximately 74% of the remaining budget is used for compensating losses of overseas resource funds, maintenance and repair of oil stockpiling bases, and other expenses.

The National Assembly Budget Office also expressed concerns about the government's resource development budget proposal. In a recent analysis of the government budget, the Budget Office stated, "The Ministry of Trade, Industry and Energy's budget for the resource supply chain sector next year has significantly increased compared to the previous year," but added, "(However) the actual budget for resource acquisition to respond to the global supply chain crisis is insufficient, and many budget increases are due to compensation for existing investments or increased costs of resource acquisition caused by rising international oil prices." The Budget Office further noted, "To enhance the effectiveness of budget increases, it is necessary to minimize resource management costs and budgets with low execution possibility, and increase the proportion of budgets for new resource acquisition."